Global investors have less appetite for higher risk exposures, particularly in the U.S., according to the BofA Merrill Lynch Fund Manager Survey for May.

While a net 47 percent of survey respondents remain overweight on equities, this is down seven percentage points month-on-month. Appetite for U.S. stocks has declined to a net 19 percent underweight, in contrast to strong overweights across the first quarter. 

Equities are a stock or any other security representing an ownership interest. Overweight, in this context, typically refers to a situation where an investment portfolio holds an excess amount of a particular security when compared to the security’s weight in in the underlying benchmark portfolio, the Investopedia website says. Securities usually will be overweight when a portfolio manager believes that the security will outperform other securities in the portfolio, it says.

Along with a weakening appetite for U.S. stocks, confidence in corporate profitability also has fallen, the survey found, with only 7 percent of surveyed investors viewing the U.S. as the region with the most favorable earnings outlook. Long U.S. dollar remains investment markets’ most crowded trade, in fund managers’ view. However, the survey’s 41 percent reading on this measure has fallen sharply from last month.

At the same time, overweight cash positions have risen sharply. Last month’s reading of a net 23 percent is the survey’s highest since December 2014.

Those shifts follow the recent aggressive sell-off in bond markets. The survey shows a strong rise in panelists’ assessment of bonds as the asset class most vulnerable to volatility this year, up to 56 percent. Bond underweights also have increased.

Investors’ macroeconomic views have changed little since last month. A net 59 percent still expect the global economy to strengthen this year, though forecasts of corporate profitability have fallen a little. Seventy percent of respondents see both growth and inflation remaining below historical trends during the next 12 months.

They are increasingly divided over the timing of a U.S. rate rise, however—36 percent expect to see it in the fourth quarter versus 45 percent in the third quarter.

“There is no loss of faith in economic recovery, and positioning still assumes that the U.S. dollar goes up, but doubts are creeping in—hence this jump in allocation to cash,” says Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. 

James Barty, head of European equity strategy for the bank, says, “Investors are keeping faith with European stocks for now, but this remains biased towards currency plays.”

In contrast to their reduced conviction toward U.S. equities, which a net 39 percent now intend to underweight over the next year, investors remain positive on both Europe and Japan, which are economies where quantitative easing continues. A respective net 49 and 42 percent of fund managers are overweight in the two markets.

Europe also remains the market most would like to overweight from a 12-month perspective. A net 33 percent still take this position, although this is now down as much as 30 percentage points from March’s very strong reading.

A net 18 percent make Japan their top pick for the coming year. This is a slight decline from last month.

At the same time, fund managers are less negative on emerging markets. Only a net 6 percent are now underweight, compared to April’s net 18 percent. Intention to own emerging markets stocks over the next year has risen similarly.

Great Britain’s recent decisive election result is reflected in investors’ more positive stance on U.K. assets. Global investors have halved their equity underweights month-on-month, while a net 3 percent of European fund managers now intend to overweight the U.K. market over the next 12 months. Last month, a net 50 percent said they would underweight it during this time period.

Similarly, views of sterling as overvalued have fallen notably. Only a net 8 percent of global fund managers now take this stance, compared to April’s net 15 percent.

Investors’ stance on the major currencies correlates with their equity positioning. A net 69 percent expect the U.S. dollar to appreciate during the next 12 months. This is up slightly from April’s reading. In contrast, a net 32 and 35 percent, respectively, expect the euro and yen to decline. Yen bearishness has risen by 16 percentage points since March.

Meanwhile, bullishness on oil has fallen. Fewer than half of the fund managers surveyed now expect the commodity to trade at a higher price in 12 months’ time. This is down significantly from April and from March’s reading of 64 percent.

A total of 169 managers, managing $479 billion, participated in the global survey from May 8 to May 14. A total of 94 managers, managing $224 billion, participated in the regional surveys during the same time period. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network, TNS provides market information services to national and multinational organizations in more than 80 countries It ranks as the fourth-largest market information group in the world.

The BofA Merrill Lynch Global Research franchise covers more than 3,400 stocks and 1,100 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2014 by Institutional Investor magazine, No. 1 in the 2015 Institutional Investor All-Europe Fixed Income Research survey, and No. 1 in the 2014 Institutional Investor All-Europe survey. It also was ranked No. 1 in the Institutional Investor 2014 Emerging EMEA Survey, No. 2 in the 2015 Institutional Investor All-Asia survey, and No. 2 in the 2014 Institutional Investor All-America survey, No. 2 in the 2015 All-China survey, and No. 2 in the 2014 All-America Fixed Income survey for the third consecutive year.

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